Dolphin Core Perspective:
Apple (AAPL. O) In the early morning of January 28, Beijing time, the US stock market released the first quarter of fiscal 2022 after hours (as of December 2021).
1. Overall performance: Both the revenue side and the gross profit margin exceeded the expected performance, bringing the strongest performance in history. The revenue side exceeded expectations mainly from the iPhone and Mac businesses released by new products. The excellent performance of the gross profit margin on the hardware side and the software side has brought the overall gross profit margin to exceed expectations. In particular, the gross profit margin of hardware, driven by high-priced machines and self-developed products, has exceeded 38% again in the past six years.
2, iPhone: shipments are subject to tight supply, and the price side is trying to turn the tide to achieve more than expected. According to Canalys, Apple's mobile phone shipments showed negative growth this quarter, which is also in line with the tight supply previously disclosed by management. Under this shipment data, the market has given a less optimistic outlook for the iPhone business this quarter. However, the release of new products has led to the hot sales of high-priced models, and the average shipment price of iPhone in this quarter has reached a new level of $900, giving the market a more than expected answer.
3, other hardware other than the iPhone: Mac and wearable business exceeded expectations, iPad downturn is less than market expectations. Although the entire hardware side was affected by the problem of tight parts in the quarter, the Mac and wearable businesses still exceeded market expectations driven by self-developed chip products and AirPods 3. iPad in the epidemic factor retreated, the problem of superimposed components, in this quarter showed a year-on-year decline.
4. Software services: The volume and price of software users have risen together, exceeding market expectations. Software services exceeded expectations in both revenue and gross margin during the quarter. From the perspective of volume price, the number of devices reached a new high and the value of arPU per device increased, resulting in a more than expected performance in the quarter. By the end of 2021, the number of Apple platform devices has reached 1.8 billion, an increase of 9% year-on-year. At the same time, the ARPU value of a single device increased from $9.5 to $10.9.
Overall view: Apple delivered a satisfactory answer sheet that exceeded expectations this quarter, with the biggest highlight being on the hardware side.
Under the problem of shortage of parts and components, many businesses on the hardware side have still achieved results that exceed market expectations. The iPhone is the company's largest source of revenue, and while the tight supply this season affected shipments, the excellent performance on the price side once again proved Apple's position in the high-end mobile phone market. The sales of new products such as Mac and AirPods 3 have also verified Apple's research and development strength and product polishing ability. The most surprising thing is that apple's hardware gross margin can continue to rise under the unfavorable supply situation, indicating that Apple's industrial chain position is fully capable of passing on costs and other factors.
On the software side, in addition to the net increase in the number of devices brought about by the excellent performance of the hardware side, the scale advantage formed by the construction of the platform ecology has driven the gross profit margin of the software service business to continue to rise.
This quarter's excellent performance continues to demonstrate Apple's ability to integrate hardware and software. Apple can overcome some difficulties on its own, but apple will still be affected by the shortage of parts this quarter and next quarter. The company expects revenue to continue to grow in the second quarter of the fiscal year, but at a slower pace than in the current quarter. In addition, we should also pay attention to the risk of large fluctuations in technology stocks in the near future, and the market is mainly worried about the Fed's interest rate hike, which may erode the future earnings value of technology stocks.
Market risk mainly lies in the overall valuation of technology stocks, and in terms of company performance, Apple has handed over an answer sheet that is close to full score. This financial report not only shows Apple's strength in the product and industrial chain, but also brings confidence in the company's future development and performance.
For details of this financial report, please refer to the following:
First, about Apple, what to know?
Apple is the most branded company in the smartphone market, accelerating the mobile phone market from the traditional machine era to the smart phone era, and also bringing a new model of building an ecosystem for monetization. Today, Apple's software service gross profit accounts for 1/3. The study of Apple is no longer just a pure hardware company that sells mobile phones, but a typical representative of the integration of soft and hard in technology companies.
Through Apple's announcement, the business is split, mainly in hardware and software:
Hardware business: The iPhone business is still the most important part of Apple's revenue composition, so mobile phone shipments and average shipment prices are the key to whether the revenue can reach expectations. Although Apple once again became the world's first mobile phone brand this quarter, in the case of tight supply, there was a year-on-year decline in shipments, so can the iPhone business and total revenue reach the expected performance in this quarter?
Software business: mainly including advertising, subscription services and other businesses, although the proportion of revenue is not large, but because compared to the hardware side has a higher gross profit margin, so the performance of the software business will become an important factor affecting the company's gross profit margin and final performance.
As smartphones have become a mature market for marketization, the company began to consider the layout of new business markets. With the integration of soft and hardware and its own ecological advantages, Apple is expected to make efforts in AR/VR, automotive and other fields. The landing of new business products is expected to bring a new growth curve to the company.
Data source: company financial report, Longbridge Dolphin investment research collation
Regarding this financial report, Longbridge Dolphin Jun mainly pays attention to the following issues:
1. Overall performance vs market expectations: How is the company's overall revenue, software and hardware, gross profit margin, operating profit, etc. performing? Was it more than expected or less than expected?
2, iPhone business: mobile phone shipments are basically expected under the market share announced by Canalys and other institutions, and the change in revenue is more from the change in the average price of mobile phone shipments. So in the second half of the new product release, can the average price of iPhone shipments increase?
3. Other hardware other than iPhone: How did the iPad and Mac businesses that benefited during the epidemic perform in the quarter? Can the release of new products such as the Apple Watch S7 and AirPods3 pull the performance of other hardware such as wearables this quarter?
4, service business: the shortage of parts and components caused by the iPhone and other hardware shipments affected, so can the software service have more than expected performance? Can the continuous improvement of software service gross margin continue to stand at 70%?
Second, the following is a detailed analysis of the Longbridge Dolphin Jun
First, the overall performance: revenue and gross margin performance exceeded expectations, bringing the strongest performance in history
1.1 Revenue: Apple achieved revenue of $124 billion in the first quarter of fiscal 2022, an increase of 11.3% year-on-year, exceeding Bloomberg's consensus estimates ($119.1 billion). The record high quarterly revenue was mainly due to the power of the iPhone and Mac business released in the second half of 2021, of which only the iPad business was lower than expected, and the rest of the businesses achieved performance that exceeded market expectations.
In addition, Apple's revenue growth slipped to a low double digit of 11.3% this quarter. The analysis of revenue growth rate is from both hardware and software. Apple's software business grew by 24.1% in the quarter, remaining above a stable water level of more than 20%. Apple's growth rate in the hardware business slipped to 9.1%, mainly due to the gradual weakening of the benefits of Apple's hardware side (iPhone) in the share of competitors in the past year, and hardware shipments gradually returned to normal from the high growth rate under the abnormal state. After a short period of abnormal high, the competition in the hardware market such as mobile phones has returned to the competition of product strength.
Source: Company financial report, Longbridge Dolphin Research
1.2 Gross margin: Apple's gross margin for the first quarter of fiscal 2022 was 43.8%, an increase of 4pct year-on-year, exceeding Bloomberg's consensus expectations (41.9%). The market itself expected apple gross margin to decline quarterly under the influence of parts shortages, but in the end Apple's earnings report handed over a contrarian upward trend.
From the perspective of splitting the gross profit margin of software and hardware, the reasons for the increase in Apple's gross profit margin this time:
Apple's software gross margin rose to 72.4 percent in the quarter, already standing above the 70 percent water level. The most important thing to pay attention to is the gross profit margin of the hardware business, apple's hardware business gross profit margin reached 38.4% in the quarter, and Apple's hardware side broke through the 38% mark again in the past 6 years. From the perspective of Apple's gross profit margin performance on the hardware side this quarter, although the shortage of parts has an impact on Apple, the company has passed on the high-priced iPhone and self-developed chip Mac products in the second half of the year, further improving the gross profit margin level of the company's hardware side. The double increase in soft and hard-end gross margins led to a better-than-expected performance of gross margins in the quarter.
1.3 Operating Profit: Apple's operating profit for the first quarter of fiscal 2022 was $41.5 billion, up 23.9% year-over-year and exceeding Bloomberg's consensus estimate of $37.3 billion. The more than expected performance of operating profit was mainly due to the unexpected performance of gross profit margin, while the operating expense ratio remained basically stable. Apple's operating expense ratio for the quarter was 10.3%, up 0.6 pct year-over-year. Among them, the sales and administrative expense ratio basically maintained the same period last year, while the research and development expense ratio increased slightly by 0.5pct year-on-year.
Second, the iPhone: strong price, beyond market expectations
In terms of each business, the first look at the iPhone, which is Apple's biggest source of revenue. iPhone revenue for the first quarter of fiscal 2022 was $71.6 billion, up 9.2% year-over-year and exceeding Bloomberg's consensus estimate of $67.7 billion. The performance of the iPhone business in the quarter exceeded expectations mainly due to the new product release in the second half of 2021, and the hot sales of pro and Pro Max versions led to an increase in the average price of iPhone shipments.
Last quarter, Apple Call management mentioned that the company's products were affected by the shortage of components. From the perspective of the volume and price relationship of the iPhone business in this quarter, the point of performance of the business exceeding expectations in this quarter and the company's shortage of stocks.
1) iPhone shipments: Before the disclosure of this quarter's earnings report, Canalys has disclosed the shipments of various brands in the quarter. The global smartphone market grew by only 1% year-on-year in the fourth quarter of 2021, while Apple's market share fell from 23% to 22%. From this calculation, iPhone shipments in this quarter showed a year-on-year decline. The company's declining shipments in the quarter were affected by the out-of-stock situation mentioned in the previous quarter's phone call;
2) Average iPhone shipment price: Due to the disclosure of Canalys data, iPhone shipments in this quarter have been digested by the market and given market expectations for the iPhone business in this quarter. However, the iPhone business in this quarter exceeded market expectations, mainly from the unexpected performance of the average price of iPhone shipments, which is also the main focus of this financial report. Combined with the iPhone business revenue and shipments, the average iPhone shipment price achieved double-digit growth in the quarter, reaching more than $900. This is mainly due to the hot sales of pro and Pro Max versions driven by the release of new iPhone products. Overall, although the iPhone products in this quarter were affected by the shortage of goods, with the hot sales in the high-priced version, they turned the tide on the average shipment price and achieved the unexpected performance of the iPhone business.
Third, other hardware other than the iPhone: Mac & AirPods3 new products to help make up for the decline of the iPad
3.1 Mac Business
Mac revenue for the first quarter of fiscal 2022 was $10.9 billion, up 25.1% year-over-year and exceeding Bloomberg's consensus estimate of $9.53 billion. The better-than-expected performance of the Mac business in this quarter was mainly driven by the hot sales of the mac new product market equipped with self-developed new products.
The PC market itself is the part that has benefited from the epidemic, and as the epidemic gradually stabilizes, the high growth of the entire PC market in the past few quarters is gone. The Mac still achieves a high growth rate of 25% in the PC market, mainly thanks to the company's self-developed chips. With the shipment of a Self-developed Chip Mac, Apple's share of the PC market is expected to continue to increase.
3.2 iPad Business
iPad revenue for the first quarter of fiscal 2022 was $7.2 billion, down 14.1% year-over-year and below Bloomberg's consensus estimate of $8.1 billion. Of the iPhone businesses in the quarter, only the iPad business fell short of market expectations. This is mainly due to the fact that the iPad itself is a way of working from home, learning from home and playing driven by the epidemic, which has achieved sustained high growth in the previous few quarters. With the weakening of the impact of the epidemic, the decline in shipments on the demand side of the entire tablet market, coupled with the impact of the shortage of parts, the iPad business also recorded the first year-on-year decline in eight quarters in this quarter.
3.3 Wearable and other hardware
In addition to the "three major pieces of stars" on the Hardware side of Apple, the rest of the hardware side revenue is mainly based on wearable and other products. Other hardware businesses such as wearables revenue for the first quarter of fiscal 2022 increased 16.6% year-over-year to $14.7 billion, higher than Bloomberg's consensus estimate of $14.2 billion. This increase is mainly due to the pull of new products such as Apple Watch S7 and AirPods3 in the second half of 2021.
Especially in the business sub-item, AirPods, as a star item, is the most concerned by the market. After the rapid penetration of wireless headphones, AirPods sales have shown a weak trend. However, the release of the new AirPods3 product has obviously driven the sales side of Apple products. Combined with industry chain research, AirPods shipped more than 25 million units in the fourth quarter of 2021, and the market expects that the entire product is expected to achieve more than 20% growth in 2022.
Fourth, software services: the volume and price of the software layer rise together, and then exceed market expectations
Software services revenue for the first quarter of fiscal 2022 was $19.5 billion, up 24.1% year-over-year, higher than Bloomberg's consensus estimate of $18.6 billion. The growth rate of software services remained above 20%, continuing to show steady growth. Among software services, the most interesting is the gross profit margin level of software services, which continued to increase to 72.4% during the quarter.
In terms of volume and price, the source of growth for Apple's software services this quarter. Apple now has 1.8 billion active devices by the end of 2021, compared to 1.65 billion in the same period last year, up 9% year-over-year, with the increase mainly coming from a net increase in the number of devices used. Further calculating the ARPU value of a single device, Apple's arPU value for a single device increased to $10.9 in the quarter from $9.50 in the same period last year, an increase of 13.9% year-on-year. Volume and price rose together, bringing the software services business to exceed expectations again in the quarter.
Longbridge Dolphin Apple History Article Retrace:
Earnings season
What did Apple's management communicate with the October 29, 2021 call on "What did Apple management communicate after the performance expectations fell short?" 》
October 29, 2021 financial report review "Expectations are empty, Apple answers are embarrassing"
July 28, 2021 Conference Call "After Apple Pentathlon Exceeds Expectations, Management's Interpretation (with Full Q&A)"
July 28, 2021 earnings report review "Apple: excellent definition, pentathlon exceeds expectations"
April 29, 2021 Conference Call Apple 2021Q2 Results Minutes
April 29, 2021 earnings report review "Excellent companies always keep exceeding expectations, Apple in the new fiscal season is tough enough!" 》
April 25, 2021 financial report preview "After the domineering side of the first quarter report, will Apple's new quarterly financial report continue to explode? 》
depth
December 6, 2021 "Apple: Two-wheel drive is gradually weak, "lame" hardware urgently needs large single product continuity"
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October 29, 2021 Apple Inc. (AAPL. US) Fourth Quarter 2021 Results Call
October 19, 2021 "Apple October New Product Launch"
Apple Fall 2021 Launch on September 15, 2021
July 28, 2021 Apple (AAPL. US) Third Quarter 2021 Results Call
April 29, 2021 Apple Inc. (AAPL. US) 2021 Second Quarter Results Call
April 21, 2021 "Apple Spring New Product Launch"